Press/DIGITAL Reports Third Quarter Net Income of $51 Million
Digital Press & Analysts News
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Digital Equipment Corporation
Maynard, Massachusetts 01754-2571
Editorial contact:
Investor Contact: Pat Spratt
(508) 493-7182
Media Contact: Dan Kaferle
(508) 493-2195
DIGITAL Equipment Corporation Reports Third Quarter
Net Income of $51 Million
...Reports Continued Improvement in Operations...
MAYNARD, Mass., April 17, 1997 -- Digital Equipment Corporation
(NYSE:DEC) today reported net income of $51 million, or $.27 per
common share, for the third quarter which ended March 29, 1997,
compared with net income of $124 million, or $.74 per common
share, for the same period last year.
Total operating revenue for the quarter was $3.31 billion,
compared to $3.62 billion reported for the comparable quarter a
year ago.
"I am pleased we showed good earnings improvement over our
second quarter," said Digital Chairman Robert B. Palmer. "Although
revenue was not where we wanted it to be, it was within our
expectations with progress in key strategic areas. I am
particularly encouraged by the growth in Windows NT-based
solutions and Internet products and services. I am confident that
we will return to year-over-year revenue growth over the next few
quarters."
Product revenue in the quarter was $1.84 billion compared to
$2.06 billion in the third quarter of the previous year. Service
revenue was $1.48 billion compared with $1.57 billion reported in
the same period last year.
Palmer said Digital is making progress in a number of
strategic areas.
"Our Internet business, which includes servers, networking
products, software and services, achieved good growth during the
quarter with total revenue now more than $1 billion on an annual
basis," Palmer said. "We are achieving substantial success in
sales to Internet Service Providers where more than 200 ISPs in 37
countries have turned to Digital for Alpha and Intel servers,
storage systems and networking products."
Palmer said the company also is winning business with
Microsoft Exchange on Windows NT, capturing approximately 900,000
Exchange seats worldwide since the beginning of the fiscal year.
More than 50 percent of the wins represent new business for
Digital including installations at British Petroleum and Lehman
Brothers.
Digital's network product business, Palmer said, introduced a
new family of high-performance switches that was well received by
the marketplace and generated strong demand.
The company's Services Division, Palmer said, met both its
near-term objectives for revenue and gross margin. The division
announced a $70 million services contract with Canada's TransAlta
Corporation early in the quarter and recently won a $13.5 million
contract with Perkin Elmer, a leading manufacturer of life-science
systems and analytical instruments, to help design, manage and
support a worldwide SAP infrastructure.
During the quarter, Digital introduced a number of important
new products.
The company announced additions and enhancements to its
64-bit Digital AlphaServer and personal workstation product lines.
The new AlphaServer 800 and enhanced AlphaServer 1000A systems
provide high-availability, computer-clustering solutions for UNIX
and Windows NT and new Windows NT intranet search capabilities.
The competitively priced entry-level servers target the small
business market.
Two new Windows NT personal workstations were announced based
on the Alpha microprocessor which deliver breakthrough Windows NT
workstation performance and the world's fastest Windows NT 3D
graphics solutions.
Additionally, the company unveiled three new models in its
value-priced HiNote VP 500 mobile client series which include
models with Windows NT Workstation 4.0 pre-loaded and
pre-configured with power management and plug-and-play features.
Digital continued to strengthen Alpha's position as the
industry's leading high performance microprocessor. The company
unveiled the low cost Alpha 21164PC microprocessor, jointly
designed with Mitsubishi Electric, that delivers Alpha power at PC
prices making it very attractive to the volume Windows NT market.
In addition, Digital announced a network appliance reference
design with Network Computer Inc., a subsidiary of Oracle Corp.,
based on Digital's low power/high performance StrongARM
microprocessor. The reference design is aimed at creating the
industry standard for the most powerful, low-cost network
computing platform.
Early interest in this offering is very encouraging with
Funai Electric Company and Aranex Inc. already committed to
producing network computing devices based on the design.
Additionally, the company announced a memo of understanding with
China Aerospace Corporation for a joint venture in the People's
Republic of China to explore development, manufacture and
distribution of network computers based on this reference design.
Gross margin for the quarter was 33.4 percent, compared with
32.9 percent in the previous quarter and 34.6 percent for the
comparable period a year ago.
Product gross margin was 35.3 percent, compared with 37.1
percent in the third quarter of 1996. Service gross margin was 31
percent compared with 31.3 percent in the third quarter of fiscal
1996.
"Over the past three years we've succeeded in improving
product gross margin by 10 points while at the same time,
stabilizing service gross margin," said Digital Chief Financial
Officer Vincent J. Mullarkey.
Total operating expenses were $1.06 billion compared to $1.13
billion reported in the same period last year.
"Overall operating expenses for the quarter reflected good
management control and the impact of restructuring, resulting in a
7 percent reduction in operating expenses from the same period
last year," Mullarkey said.
"Our third quarter profits improved considerably over the
second quarter, despite the significant negative impact of the
strengthening U.S. dollar," Mullarkey continued. "Management
actions were taken across the company during the quarter to partly
mitigate the currency impact."
The company ended the quarter with $2.48 billion in cash and
short term investments, up approximately $200 million from the
second quarter.
"The company's balance sheet continues to strengthen in all
areas," Mullarkey said. "Improvements in inventory and accounts
receivable contributed to the fifth consecutive quarter of
positive cash flow from operations. During the quarter, the
company repurchased 4.5 million shares of common stock at a cost
of approximately $160 million. The company's cash and short term
investments position has improved more than $700 million from a
year ago."
The corporation completed the quarter with approximately
55,100 employees -- a net reduction of 5,800 positions from a year
ago.
Digital Equipment Corporation is a world leader in open
client/server solutions from personal computing to integrated
worldwide information systems. Digital's scalable Alpha and Intel
platforms, storage, networking, software and services, together
with industry-focused solutions from business partners, help
organizations compete and win in today's global marketplace.
Statements contained in this press release which are not
historic facts are forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995.
All forward-looking statements are subject to risks and
uncertainties which could cause actual results to differ from
those projected. Such risks and uncertainties are discussed more
fully in the company's latest quarterly report on Form 10-Q and
the company's other filings with the Securities and Exchange
Commission.
####
Note to Editors: Digital, the Digital logo, DEC, HiNote and
AlphaServer are trademarks of Digital Equipment
Corporation. StrongARM is a registered
trademark of Advanced RISC Machines, Ltd.
Windows NT and Microsoft Exchange are
trademarks of Microsoft Corporation. UNIX is a
registered trademark in the United States and
other countries, licensed exclusively through
X/Open Company, Ltd. All other products
mentioned are trademarks or registered
trademarks of their respective holders.
CORP/97/573
============================================================================
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============================================================================
Consolidated Statements of Operations (Unaudited)
(in thousands except per share data)
Three-Month Period Ended
March 29, 1997 March 30, 1996
Product sales...................$ 1,836,516 $ 2,055,710
Service revenues................. 1,477,794 1,565,316
Total operating revenues......... 3,314,310 3,621,026
Cost of product sales............ 1,188,578 1,294,032
Service expense.................. 1,019,290 1,074,650
Research and engineering
expenses......................... 256,476 275,703
Selling, general and
administrative expenses.......... 798,714 858,203
Operating income................. 51,252 118,438
Other (income)/expense, net (1).. (10,848) (19,272)
Income before income taxes....... 62,100 137,710
Provision for income taxes....... 11,134 13,637
Net income....................... 50,966 124,073
Dividend on preferred stock...... 8,875 8,875
Net income applicable
to common stock.................$ 42,091 $ 115,198
Net income applicable
per common share (2)............$ 0.27 $ 0.74
Weighted average common
shares outstanding............... 155,666 156,594
Nine-Month Period Ended
March 29, 1997 March 30, 1996
Product sales...................$ 5,202,959 $ 6,221,248
Service revenues................. 4,380,739 4,622,275
Total operating revenues......... 9,583,698 10,843,523
Cost of product sales............ 3,445,203 4,133,992
Service expense.................. 3,016,261 3,115,310
Research and engineering
expenses......................... 763,961 795,483
Selling, general and
administrative expenses.......... 2,348,297 2,464,372
Operating income................. 9,976 334,366
Other (income)/expense, net (1).. (27,465) (30,416)
Income before income taxes....... 37,441 364,782
Provision for income taxes....... 20,475 43,756
Net income....................... 16,966 321,026
Dividends on preferred stock..... 26,625 26,625
Net income/(loss) applicable
to common stock.................$ (9,659) $ 294,401
Net income/(loss) applicable
per common share (2)............$ (0.06) $ 1.91
Weighted average common
shares outstanding............... 154,965 154,209
Note (1): In the third quarter of fiscal 1997, Other (income)/expense, net
includes approximately $30 million of interest income, $21 million in interest
expense and $2 million in net gain on divestments. In the third quarter of
fiscal 1996, Other (income)/expense, net includes approximately $19 million in
interest income, $26 million in interest expense and there were $26 million in
net gains on divestments. In the first nine months of fiscal 1997, Other
(income)/expense, net includes approximately $82 million in interest income, $64
million in interest expense and $9 million in net gains on divestments. In the
first nine months of fiscal 1996 Other (income)/expense, net includes
approximately $57 million in interest income and $75 million in interest expense
and $48 million in net gains on divestments.
Note (2): Per common share amounts are calculated based on the weighted average
number of common shares and common share equivalents outstanding during periods
of net income, after deducting applicable preferred stock dividends. Per share
amounts are calculated based only on the weighted average number of shares
outstanding during periods of net loss, after deducting applicable preferred
stock dividends.
Selected Balance Sheet Data (Unaudited) - Q3 FY97
(in thousands except per share and employee data)
March 29, 1997
Cash, cash equivalents and short-term investments.......$ 2,481,708
Accounts receivable, net of allowances................... 2,886,164
Inventories.............................................. 1,471,390
Prepaid expenses, deferred income taxes and other
current assets........................................... 324,510
Total current assets..................................... 7,163,772
Property, plant and equipment, net....................... 2,114,074
Other assets............................................. 334,667
Total assets............................................. 9,612,513
Bank loans and current portion of long-term debt (3)..... 264,043
Accounts payable......................................... 810,056
Accrued restructuring costs.............................. 443,230
Total current liabilities................................ 4,187,413
Long-term debt (3)....................................... 749,320
Postretirement and other postemployment benefits......... 1,179,420
Total liabilities........................................ 6,116,153
Stockholders' equity....................................$ 3,496,360
Book value per common share.............................$ 20.26
Non-U.S. revenues...................................QTR $ 2,274,037
69%
YTD $ 6,473,907
68%
Employee population (approximately)..................... 55,100
Note (3): In the second quarter of fiscal 1997, $250 million was reclassified
from long-term debt to current portion of long term debt to reflect the maturity
of bonds due in November of 1997.